Bharat Petroleum Corporation (BHAPET)

CMP: | 465 Target: | 520 (12%) Target Period: 12 months HOLD

August 19, 2021 Subdued performance, privatisation key trigger…

About the stock: Corporation (BPCL) is a public sector refining &

marketing company.  BPCL operates more than 18000 retail outlets across the country Particulars

P articular Am ount Update  Under the ongoing divestment process, the government will sell its 53% Market Capitaliz ation (| Crore) 97,320.3 stake in the company to a private player Total Debt (FY 20) (| Crore) 47,818.7 Cash and Investments (FY 20) (| Crore) 115.8 E V (| Crore) 1,45,023.2 Result 52 week H/L 494/325 Q1FY22 Results: BPCL reported subdued Q1FY22 results. E quity capital (| Crore) 2,092.9 Face value (|) 10.0  Revenues fell 9.2% QoQ to | 89687.1 crore (our estimate: | 99563.6 crore)

on lower-than-expected marketing sales Shareholding pattern  EBITDA was at | 3252.7 crore (down 35.7% QoQ), lower than estimated (in %) Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 EBITDA of | 3944.4 crore on account of a weak refining performance P romoter 53.0 53.0 53.0 53.0 53.0 F II 12.0 12.0 11.6 12.4 12.6  Consequent reported PAT was at | 1501.7 crore, down 87.4% QoQ (our DII 20.5 20.6 20.1 23.3 22.4 estimate: | 2307.7 crore) O thers 14.6 14.5 15.4 11.3 12.0

Price Chart

What should investors do? BPCL’s share price has increased by ~30% over the 600 60000 past two years and outperformed other OMC stocks following the announcement by 500 50000 the government regarding its divestment. 400 40000 300 30000  We retain our HOLD rating on the stock 200 20000 Target Price and Valuation: We value BPCL at | 520 i.e. average of P/BV multiple: 100 10000

| 531/share and P/E multiple: | 510/share. 0 0

Jul-18 Jul-20 Jul-19 Jul-21

Nov-19 Nov-20 Nov-18

Mar-19 Mar-20 Mar-18 Mar-21

BPCL BSE Sensex Research Equity Retail Key triggers for future price performance: –

 Progress on divestment and positive response by bidders for acquisition Recent event & key risks

 Recovery in global refining product cracks (mainly diesel)  Divestment expected by end of  Pick-up in fuel demand and steady marketing margins FY22 as per the government  Key Risk: (i) Weaker than expected GRMs, (ii) Better than

ICICI Securities Securities ICICI Alternate Stock Idea: Apart from BPCL, in our oil & gas coverage we also like IOC. expected marketing margins

 IOC with its pan- presence offers exposure to steady pipeline business Research Analyst along with improving profitability in refining and petchem segments. It Mayur Matani trades at relatively cheaper valuation compared to peers [email protected]  BUY with a target price of | 120 Amogh Deshpande [email protected]

Key Financial Summary

5 Year CAGR 2 year CAGR (Year-end March) F Y19 F Y20 F Y21E F Y22E F Y23E (FY16-21E) (FY21E-23E) R evenues (₹ crore) 3,37,495.3 3,27,580.8 3,01,865.0 9.8 3,92,185.1 4,18,066.9 17.7 E B ITDA (₹ crore) 11,837.0 6,639.3 17,130.6 9.2 12,471.8 14,312.0 (8.6) Net Profit (₹ crore) 7,132.0 2,683.2 19,041.7 20.7 6,676.9 8,143.4 (34.6) E P S (₹) 36.3 13.6 91.0 31.9 38.9 P /E (x) 12.8 34.1 5.1 14.6 12.0 Price / Book (x) 2.5 2.8 1.7 2.1 1.9 E V /E B ITDA (x) 10.2 21.0 7.4 9.9 8.3 R oC E (% ) 13.1 3.5 14.3 10.1 11.8 R oE (% ) 19.4 8.1 33.8 14.2 15.9

Source: Company, ICICI Direct Research Result Update | Bharat Petroleum Corporation ICICI Direct Research

Key takeaways of the recent quarter Q1FY22 Results: Subdued performance  BPCL’s topline was down 9.2% QoQ (up 77.2% YoY on a lower base) to | 89687.1 crore (our estimate: | 99563.6 crore) as fuel demand reduced during the quarter due to the second wave of Covid-19. Marketing sales were at 9.6 MMT (down 13.8% QoQ, up 27.9% YoY) against our estimate of 10 MMT  As per our understanding, the performance of the overall marketing segment was broadly in line with estimates on account of some improvement in margins QoQ  BPCL achieved crude throughput of 6.8 MMT (down 18.5% QoQ) marginally lower than our estimates of 7 MMT during the quarter. Reported GRMs at US$4.1/bbl were lower than our estimates of US$5.7/bbl

 Subsequently, EBITDA was at | 3252.7 crore (down 35.7% QoQ) lower than estimated EBITDA of | 3944.4 crore. BPCL reported exceptional loss of | 77.1 crore due to employee share based expenses

Peer comparison

Exhibit 1: Peer Comparison CMP TP M C ap E PS (|) P/E (x) EV/EBITDA (x) R oC E (%) R oE (%) Sector / Company R ating (|) (|) (| C r)FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E BPCL (BHAPET) 465 520 H old 97,320 91.0 31.9 38.9 5.1 14.6 12.0 7.4 9.9 8.3 14.3 10.1 11.8 33.8 14.2 15.9 HPCL (HINPET) 264 265 H old 38,344 70.6 34.3 29.0 3.7 7.7 9.1 5.3 7.6 7.4 14.9 7.4 6.1 29.5 13.0 10.6 Indian Oil Corp (INDOIL) 104 120 Buy 95,483 23.8 15.8 15.6 4.4 6.6 6.7 2.5 2.9 2.9 13.3 10.0 9.5 19.8 12.2 11.5

Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 2 Result Update | Bharat Petroleum Corporation ICICI Direct Research

Exhibit 2: Variance Analysis Q1FY22 Q1FY22E Q1FY21 YoY (%) Q4FY21 QoQ (%) Comments Total Revenues 89,687.1 99,563.6 50,616.9 77.2 98,755.6 -9.2 Raw materials costs 26,805.3 25,384.9 9,238.5 190.1 28,602.2 -6.3 Employees Cost 738.9 930.0 902.9 -18.2 1,132.8 -34.8 Other Expenses 58,890.2 69,304.3 36,559.7 61.1 63,962.8 -7.9 Total Expenditure 86,434.4 95,619.1 46,701.1 85.1 93,697.8 -7.8 EBITDA 3,252.7 3,944.4 3,915.8 -16.9 5,057.9 -35.7 Weaker than expected on subdued refining performance EBITDA margins (%) 3.6 4.0 7.7 -411 bps 5.1 -149 bps Depreciation 1,144.6 1,100.8 995.9 14.9 999.8 14.5 EBIT 2,108.2 2,843.6 2,920.0 -27.8 4,058.1 -48.1 Interest 486.7 568.4 587.1 -17.1 477.6 1.9 Other Income 451.7 810.0 593.3 -23.9 1,664.0 -72.9 Lower than estimates Extra Ordinary Item -77.1 0.0 0.0 NA 6,993.0 NA PBT 1,996.1 3,085.2 2,926.2 -31.8 12,237.4 -83.7 Total Tax 494.5 777.5 850.0 -41.8 297.3 66.3 PAT 1,501.6 2,307.7 2,076.2 -27.7 11,940.1 -87.4

Key Metrics Exchange rate (|/$) 73.9 73.9 75.9 -2.7 72.9 1.3 Throughput (mmt) 6.8 7.0 5.1 33.1 8.4 -18.5 Sales (mmt) 9.6 10.0 7.5 27.9 11.2 -13.8 GRM ($/barrel) 4.1 5.7 0.4 956.4 6.6 -38.0 Reported GRMs below estimates

Source: Company, ICICI Direct Research

Exhibit 3: Change in estimates FY22E FY23E (₹ Crore) Old New % Change Old New% Change Revenue 379554.7 392,185.1 3.3 387411.9 418,066.9 7.9 Revised sales estimates higher due to higher oil prices EBITDA 13096.1 12,471.8 -4.8 14008.0 14,312.0 2.2 EBITDA Margin (%) 3.5 3.2 -27 bps 3.6 3.4 -19 bps PAT 7374.6 6,676.9 -9.5 8163.3 8,143.4 -0.2 EPS (|) 35.2 31.9 -9.5 39.0 38.9 -0.2

Source: ICICI Direct Research

Exhibit 4: Assumptions Current Earlier Comments FY20 FY21 FY22E FY23E FY22E FY23E Exchange rate (|/$) 70.9 74.0 74.4 74.5 73.6 73.5 Reduced FY22E throughput estimates due to lower capacity Throughput (mmt) 31.9 26.4 30.5 32.6 30.7 32.6 utilisation in Q1FY22

Sales (mmt) 43.1 38.7 43.4 46.9 43.2 46.8

Lower FY22E sales estimate taking into account subdued GRM ($/barrel) 2.5 4.1 3.9 4.5 4.3 4.5 Q1FY22 numbers

Source: ICICI Direct Research

ICICI Securities | Retail Research 3 Result Update | Bharat Petroleum Corporation ICICI Direct Research

Story in charts

Exhibit 5: Oil throughput trend

Source: Company, ICICI Direct Research

Exhibit 6: Marketing sales volume trend

Source: Company, ICICI Direct Research

Exhibit 7: Refining margin trend

Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 4 Result Update | Bharat Petroleum Corporation ICICI Direct Research

Financial Summary

Exhibit 8: Profit and loss statement | crore Exhibit 9: Cash flow statement | crore (Year-end March) F Y20 F Y21E F Y22E F Y23E (Year-end March) F Y20 F Y21E F Y22E F Y23E R evenue 327580.8 301865.0 392185.1 418066.9 P rofit after Tax 2,683.2 19,041.7 6,676.9 8,143.4 G rowth (% ) -2.9 -7.9 29.9 6.6 Add: Depreciation 3,786.9 3,978.1 4,447.0 4,853.3 (Inc.)/(Dec.) in stock in trade -456.6 -3633.6 -475.7 0.0 Add: Others -201.7 -1,495.7 50.0 50.0 Raw material Costs 113229.3 71153.6 115038.9 121624.4 Cash Profit 6,268.4 21,524.0 23,323.9 13,046.6 Purchase of Products 143164.3 127800.9 167398.9 183274.9 Increase/(Decrease) in CL -4,401.6 7,373.5 11,675.3 4,115.5 Employee Costs 3691.5 4477.2 3726.3 3856.8 (Increase)/Decrease in CA 2,396.0 -16,638.8 3,579.8 -897.3 Other E xpenditure 61313.1 84936.3 94025.0 94998.8 CF from Operating Activities 4262.8 12258.7 38579.0 16264.8 Op. E xpenditure 320941.5 284734.4 379713.4 403754.9 Purchase of Fixed Assets 16,688.9 7,916.7 9,956.8 7,913.0 EBITDA 6639.3 17130.6 12471.8 14312.0 (Inc)/Dec in Investments -66.4 -1,626.1 1,939.9 500.0 G rowth (% ) -43.9 158.0 -27.2 14.8 O thers 0.0 0.0 0.0 0.0 Depreciation 3786.9 3978.1 4447.0 4853.3 CF from Investing Activities -16755.3 -9542.8 -8017.0 -7413.0 E B IT 2852.4 13152.6 8024.8 9458.7 Inc/(Dec) in Loan Funds 18,719.4 -12,000.0 -3,500.0 -3,500.0 Interest 2181.9 1328.4 1917.6 1711.8 Less: Dividend Paid 6,233.7 4,409.0 15,917.2 4,185.8 Other Income 2000.5 10793.4 2781.7 3140.0 Inc/(Dec) in Sh. Cap. & Res. 27.2 20,626.0 -12,150.0 0.0 P B T 2671.0 22617.6 8889.0 10886.9 O thers 0.0 0.0 0.0 0.0 G rowth (% ) -74.4 746.8 -60.7 22.5 C F from financing activities 12,512.9 4,217.0 -31,567.2 -7,685.8 Tax -12.2 3575.9 2212.1 2743.5 Change in cash Eq. 20.4 6,932.9 -1,005.2 1,165.9 Reported PAT 2683.2 19041.7 6676.9 8143.4 Op. Cash and cash Eq. 95.4 115.8 7,048.7 6,043.4 G rowth (% ) -62.4 609.7 -64.9 22.0 Cl. Cash and cash Eq. 115.8 7,048.7 6,043.4 7,209.4 EPS 13.6 91.0 31.9 38.9 Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research

Exhibit 10: Balance Sheet | crore Exhibit 11: Key ratios (Year-end March) F Y20 F Y21E F Y22E F Y23E (Year-end March) F Y20 F Y21E F Y22E F Y23E S ource of F unds Per share data (|) E quity Capital 1,966.9 2,092.9 2,092.9 2,092.9 B ook V alue 168.9 269.2 225.1 244.0 Preference capital 0.0 0.0 0.0 0.0 Cash per share 0.6 33.7 28.9 34.4 Reserves & Surplus 31,247.5 54,255.2 45,014.8 48,972.4 EPS 13.6 91.0 31.9 38.9 Shareholder's Fund 33,214.4 56,348.1 47,107.7 51,065.3 C ash E P S 32.9 110.0 53.2 62.1 Loan F unds 47,818.7 35,818.7 32,318.7 28,818.7 DPS 15.0 79.0 18.0 20.0 Deferred Tax Liability 5,967.3 4,471.6 4,521.6 4,571.6 Profitability & Operating Ratios Minority Interest 0.0 0.0 0.0 0.0 EBITDA Margin (% ) 2.0 5.7 3.2 3.4 S ource of F unds 87000.4 96638.3 83948.0 84455.5 PAT Margin (% ) 0.8 6.3 1.7 1.9 Fixed Asset Turnover (x) 4.9 4.3 5.2 5.3 Application of F unds Inventory Turnover (Days) 22.8 32.4 23.0 23.0 Gross Block 70,182.1 77,182.1 86,182.1 93,182.1 Debtor (Days) 5.8 9.5 7.0 7.0 Less: Acc. Depreciation 12,834.3 16,895.6 21,385.8 26,326.0 Current Liabilities (Days) 38.8 50.0 50.0 50.0 Net B lock 57,347.7 60,286.4 64,796.3 66,856.1 Return Ratios (%) Capital WIP 9,108.1 10,108.1 11,108.1 12,108.1 R oE 8.1 33.8 14.2 15.9 Total Fixed Assets 66,455.8 70,394.5 75,904.4 78,964.2 R oC E 3.5 14.3 10.1 11.8 Investments 16,058.0 17,684.1 15,744.2 15,244.2 R oIC 3.7 15.9 11.3 13.3 Inventories 20,421.1 26,756.8 24,713.0 26,343.9 Valuation Ratios (x) Debtor 5,164.3 7,827.5 7,521.4 8,017.7 PE 34.1 5.1 14.6 12.0 C ash 115.8 7,048.7 6,043.4 7,209.4 Price to Book Value 2.8 1.7 2.1 1.9 Loan & Advance, Other CA 17048.1 12563.1 11333.1 10103.1 E V /E B ITDA 21.0 7.4 9.9 8.3 Total Current assets 42749.3 54196.0 49610.9 51674.1 E V /S ales 0.4 0.4 0.3 0.3 Current Liabilities 34824.9 41351.4 53724.0 57269.4 Leverage & Solvency Ratios P rovisions 3437.9 4284.9 3587.6 4157.6 Debt to equity (x) 1.4 0.6 0.7 0.6 Total CL and Provisions 38262.8 45636.3 57311.6 61427.0 Interest Coverage (x) 1.3 9.9 4.2 5.5 Net Working Capital 4486.5 8559.7 -7700.6 -9752.9 Debt to E BITDA (x) 7.2 2.1 2.6 2.0 Miscellaneous expense 0.0 0.0 0.0 0.0 Current Ratio 1.1 1.2 0.9 0.8 Application of F unds 87000.4 96638.3 83948.0 84455.5 Quick ratio 0.6 0.6 0.4 0.4

Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 5 Result Update | Bharat Petroleum Corporation ICICI Direct Research

Exhibit 12: ICICI Direct coverage universe (Oil & gas) CMP TP M C ap E PS (|) P/E (x) EV/EBITDA (x) R oC E (%) R oE (%) Sector / Company R ating (|) (|) (| C r)F Y21E F Y22E F Y23E F Y21E F Y22E F Y23E F Y21E F Y22E F Y23E F Y21E F Y22E F Y23E F Y21E F Y22E F Y23E BPCL (BHAPET) 465 520 H old 97,320 91.0 31.9 38.9 5.1 14.6 12.0 7.4 9.9 8.3 14.3 10.1 11.8 33.8 14.2 15.9 GAIL (India) (GAIL) 139 180 H old 61,721 11.0 16.4 17.7 12.6 8.5 7.9 10.3 6.4 6.3 8.7 14.4 13.6 10.6 14.4 14.1 G ujarat G as (G U JG A) 722 735 H old 49,702 18.5 24.9 26.3 39.0 29.0 27.5 24.1 18.7 17.4 33.0 36.5 32.8 29.0 29.6 25.4 HPCL (HINPET) 264 265 H old 38,344 70.6 34.3 29.0 3.7 7.7 9.1 5.3 7.6 7.4 14.9 7.4 6.1 29.5 13.0 10.6 Indian Oil Corp (INDOIL) 104 120 Buy 95,483 23.8 15.8 15.6 4.4 6.6 6.7 2.5 2.9 2.9 13.3 10.0 9.5 19.8 12.2 11.5 (INDGAS)535 585 H old 37,450 14.4 18.0 21.5 37.2 29.7 24.9 24.5 19.8 16.5 20.7 23.1 23.3 17.4 18.9 19.3 (MAHGAS)1167 1340 Buy 11,527 62.7 95.6 107.2 18.6 12.2 10.9 11.9 7.9 6.6 22.6 29.7 28.1 18.7 23.9 22.5 ONGC (ONGC) 114 110 H old 1,46,300 9.0 19.1 20.7 12.6 6.0 5.5 5.2 3.3 3.0 4.4 11.6 11.4 5.6 10.9 10.9 P etronet LNG (P E T LNG ) 223 245 H old 33,450 19.7 19.1 21.2 11.3 11.7 10.5 6.8 6.7 5.9 25.3 23.4 24.1 24.4 22.3 22.8

Source: Bloomberg, ICICI Direct Research

ICICI Securities | Retail Research 6 Result Update | Bharat Petroleum Corporation ICICI Direct Research

RATING RATIONALE ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according -to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock

Buy: >15% Hold: -5% to 15%; Reduce: -15% to -5%; Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]

ICICI Securities | Retail Research 7 Result Update | Bharat Petroleum Corporation ICICI Direct Research

ANALYST CERTIFICATION

I/We, Mayur Matani, MBA, Amogh Deshpande, PGDM, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

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